Step-by-Step Guide to Buying a Home Subject to an Existing Mortgage

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In this step-by step-guide to buying a home subject to an existing mortgage, you will learn:

  • What ‘subject to’ in real estate is.
  • How to find ‘subject to’ homes for sale.
  • How to make an offer on a ‘subject to property.
  • How to structure a ‘subject to’ real estate contract.
  • How to close on a ‘subject to’ transaction.

I will also provide you with a checklist for buying real estate by using this strategy.

‘Subject to’ real estate investing has proven to be a great method for buying investment properties as a newbie investor, as it was for me early on in my investing career.

Let’s start by defining the term ‘subject to’ for investing in real estate.


What Is “Subject To” in Real Estate?

A subject to transaction in real estate is when you buy a property by agreeing to take over the seller’s existing payments on their underlying mortgage.

At closing, the title is transferred to the buyer but the loan stays in the seller’s name. The buyer agrees to make the seller’s payments going forward until the loan is paid off or cashed out.


How and Where to Find ‘Subject to’ Properties

Let’s take a closer look at how to find subject to properties:

  • investment property marketplace
  • on a pre-foreclosures list
  • by driving for dollars
  • among expired MLS listings
  • on FSBO websites

These are four great off-market strategies to find motivated sellers of properties suitable for ‘subject to’ deals with homeowners who need to sell but have difficulties.


HouseCashin Investment Property Marketplace

The easiest way to find ‘subject to’ deals is using the online off market property marketplace by HouseCashin.

Unlike regular real estate listing websites, it’s designed specifically for real estate investors.

It’s a nationwide search engine for off-market properties where you can find many lucrative investment opportunities.

The properties are listed either by motivated sellers themselves as FSBO deals or real estate wholesalers who have pre-negotiated the deal for you.

The marketplace’s two major advantages are:

  1. its investor-friendly interface and search refining filters allowing you to easily find many types of deals sought by investors (subject to, fix and flip, distressed homes, short sales etc.)
  2. detailed listing data. Not only listings show the basic property details (size, price, location), but they may also suggest the investment potential, projected profit, and other investment-related data.

To browse available ‘subject to’ properties for sale, select this type of deal in the Deal Types filter.


Pre-Foreclosure Lists

The pre-foreclosure list is a great option because homeowners are in financial hardship and need to sell quickly.

Pre-foreclosure lists can be purchased online from one of the lead generation sources for real estate investors.

After you buy and scrub the list, mail postcards to the homeowners in pre foreclosure and let them know that you are looking to buy a house in the area.

If you are not sure what message to write on the postcards, one of the best direct mail services for real estate investors can do it all for you.


Driving for Dollars

Driving for dollars is one of the offline ways to find distressed properties and vacant homes to buy ‘subject to’.

Owners often don’t have the capital to fix up their property. It could be pretty easy to find these properties because they may be in and around your neighborhood, depending on where you live.

Before you get into your car and start driving, download the DealMachine app. It allows you to lookup property owners, works as skip tracing software for real estate investors, tracks your driving route, and offers a direct mail marketing campaign.


Expired MLS Listings

Expired MLS listings are a goldmine if you work it correctly. Start by only looking at houses that are vacant, listed for 180 days, and have a recent price reduction.

Mail postcards or letters and make sure the message is hand written with a real stamp in a white envelope.

Because the property didn’t sell, sellers are more open to considering alternative options, especially if the house is vacant and with a mortgage.



Another strategy that real estate investors often use is calling FSBO ads on websites like Zillow.com and FSBO.com.

The trick is to call ads that had a recent price reduction, are vacant, and have stuff like “must sell, willing to negotiate” or “motivated” in the title or description.

A lot of sellers might not have enough equity to pay realtor commissions and closing costs but will entertain creative solutions to selling their property.

The really great thing is that it doesn’t cost you anything, only time.

Remember that this is a numbers game, so talking to a lot of motivated sellers is how to get a ‘subject to’ home.

It goes without saying that the more motivated sellers you talk to, the more homes you will buy.

Additionally to these methods, consider others described in the article, 7 Ways to Generate Motivated Seller Leads on Autopilot.

Or simply buy highly converting motivated seller leads for investors through our robust real estate Lead Marketplace.


Making an Offer for a Subject to Sale House

Before making an offer to buy the property subject to, you need to build rapport and ask motivated sellers questions to find their pain and level of motivation.

Depending on the type of the motivated seller, answers to all or most of these questions are necessary to know if the deal is worth pursuing:

  • How soon do you need to move?
  • How much are you asking for the house?
  • How much do you think a local real estate appraiser would say your house cost?
  • Does the house need any repairs?
  • How many bedrooms and bathrooms are there?
  • What is the total square feet of the house?
  • Is the house listed with a local realtor?
  • Is the house occupied or vacant?
  • Why are you selling?
  • Do you have a mortgage or is the house free and clear?
  • How much are your monthly mortgage payments?
  • Does the monthly payment include the taxes and insurance?
  • Are your mortgage payments current?
  • How much is your loan balance?
  • Would you sell for what you owe?
  • Would you consider taking monthly payments for your equity?

The answers to each of these questions become a part of your property lead sheet. It helps gather all the necessary information so that you can properly analyze the deal.

Remember to ask the seller for their email address, phone number, and the property address.

During this process, it’s not uncommon for the seller to play hard ball about providing their mortgage information.

So if that happens here’s how you can negotiate:

Seller: That is none of your business.

You: I understand your concern but we buy houses by using several methods, and they all require that information for me to analyze if your property fits any.

Sometimes we pay all cash and sometimes we buy with seller financing, and of course that has to be structured around your debt.

What I can’t do is pay all cash at full market value so if you tell me now that’s the only way you wish to sell, then I won’t need the information.

But if you are flexible enough to let me offer you one or more options at no cost or risk to you, I will need this information.

Should we proceed or not?

After you’ve built some rapport, gotten the seller to disclose their pain point, and answer your questions, it’s time to present the seller with your offer to buy their property subject to the existing financing.

These are different approaches to presenting your offer and the benefits to the seller.

  • “Ok, (Seller’s Name) now that I’ve got all the facts, I can come see the house and likely buy it, close as soon as you are ready and pay all of the closing costs. But the only possible way I can do this is to take over your existing debt. That means I will buy your house and make the payments when you and I agree I will start. But the loan will stay in your name until sometime in the future when I get it cashed out. Will that be okay with you?”
  • “(Seller’s Name), we’ve got a program for people who need to sell quickly where we take over your house payments, reinstate your loan, pay your closing costs and we accept all responsibility for future repairs. We will continue making your payments until we find a buyer who qualifies for a new loan and cash us out. Does this sound like something that would work for you?”

Presenting a good ‘subject to’ offer in real estate comes down to how well you’ve listened to the seller’s motivation and pressing needs.


How to Structure a ‘Subject To’ Deal Real Estate Contract

Now that you got the seller to accept your proposal to take over their mortgage payments, the next step will be to prepare the ‘subject to’ purchase agreement.

Under the purchase price section, it’s very important that you write in all of the loan information. Ask the seller for a recent mortgage statement if you need to.

You should also have the seller sign an Authorization to Release Information form. This will allow you to confirm the terms of the loan with the lender as an authorized third party.

Both you and the seller need to sign off on the purchase agreement. If you are buying the property in your entity, remember to sign the contract as, “John Doe, as Manager of Your Entity Name, LLC”.

What is unique about a ‘subject to’ purchase arrangement? It outlines the loan balance, monthly payment amount, interest rate, and that the loan will be taken subject to the existing mortgage.

It’s also unique because it shows the lender’s name and a Promissory Note section underneath the Purchase Price heading.

Unlike the traditional purchase and sale agreement, these ‘subject to’ purchase contract terms are legally binding after closing.


How to Do a ‘Subject To’ Real Estate Transaction

At this stage, you will need the Purchase and Sale Agreement and the Authorization to Release Information form signed.

The authorization form needs to be emailed or faxed to the lender. It usually takes 24 to 48 hours to update the account with the information allowing you to verify the loan.

Always remember to do your investment property due diligence when buying property ‘subject to’.

Run the numbers to find out the property’s After Repair Value based on what has recently sold. Use this time to estimate repairs cost, if any.

This will help you to decide what your exit strategy is going to be. Are you going to do a lease option, owner financing, or turn it into a short term rental?

If you are using an attorney or title company to close, ask them to do a preliminary title search. The seller will need to sign a Limited Power of Attorney, Seller Disclosure, Seller’s Acknowledgement, and Management Letter.

Anything else that’s missing your attorney or title company will take care of it at closing.

The closing attorney or title company that you decide to use must have prior experience closing ‘subject to’ transactions.

Not all local real estate attorneys and title companies know how to properly close creative ‘subject to’ deals.

During the initial call, ask if they have done any closings recently where title was transferred but the underlying mortgage was not paid off at closing.

The Seller Disclosure is a document that must be filled out and signed by the seller.

The property disclosure form is a detailed list of specific issues about the property that the seller must check off if the property has them.

For example, sellers are required by Federal law to disclose lead-based paint if the property was built before 1978.

The Seller’s Acknowledgement, better known as a CYA (cover your ass), is a detailed checklist for sellers to complete, sign and notarize at closing.

This document spells out in plain English that the seller understands they are selling their property subject to the existing financing.

They know and understand their loan will not be paid off at closing, but will remain in place.

It also reminds the seller of the risks involved with selling their property ‘subject to’ and how it could negatively impact their credit.

The Management Letter notifies the mortgage company that the seller has retained your company’s property management services.

Examples of this are to collect rent and pay their loan payments on a monthly basis. It also asks lenders to send all future statements and any notices of changes in the payment amount to your company.

After the closing, use the Limited Power of Attorney to cancel the seller’s home insurance and replace it with a non-owner occupied policy.

You should be listed as primary insured, lender as mortgagee, and the seller as additional insured.

Ask the seller for the account information of the local utility companies and call each one to verify there are no past due bills.

If the property tax is not being escrowed by the lender, call the property tax assessor office to confirm that the taxes are current and not past due.

The seller will need to bring the existing property survey to closing and two forms of identification.

At the day of closing, your attorney or title company will prepare a HUD-1 settlement statement and each party will sign and notarize the closing documents.

If funds are to be paid to the seller, it will either be in the form of a cashier check or wire transfer.

After closing, the new deed will get recorded at the local county clerk’s office by the closing agent or attorney.

The buyer and seller will receive originals and copies of all the signed and notarized documents for their records.


Buying ‘Subject To’ Real Estate Checklist

Here’s a checklist shortly summarizing how to do subject to real estate deals. Make sure that all of these items are in place:

  1. Purchase and sale agreement
  2. Authorization to Release Information
  3. Property Lead Sheet
  4. Title Search Report
  5. Insurance
  6. Copy of seller’s Note and Mortgage
  7. Seller’s Property Survey
  8. Mortgage statement (most recent)
  9. Seller’s Acknowledgement
  10. Escrow Letter
  11. List of Utility Companies and account information
  12. Preliminary title search
  13. Seller Disclosure
  14. Management Letter
  15. Addendum for possession (if not vacant)
  16. Limited Power of Attorney

Buying your first investment property ‘subject to’ at first glance might seem daunting. But if you follow the steps laid out in this guide’ you will be closing on your first deal before you know it.

It’s just a matter of finding a motivated seller that’s open to the idea and then explaining the benefits.

For sellers, they’re able to avoid foreclosure, sell as is without inspection contingencies, close quickly, and walk away with some cash.

The benefits for buyers far outweigh the risk. ‘Subject to’ transactions require little to no money, no credit, quick closings, and there are no limits to how many you can buy.

This article discussed the basics of the strategy. Consider learning all the Dos and Don’ts from Pace Morby’s SubTo course, a training and all-inclusive mentorship program focusing on subject to investing. Alternatively, there are other subject to real estate investing courses that we also reviewed.


If you want to contribute your expert advice on a topic of your expertise, feel free to apply to our Expert Contributor Program.


About the author:

Logan Bush is the co-founder of NeedToSellMyHouseFastinDenver.com. He has been investing in residential real estate for over 5 years. Over the years, Logan has bought and sold over 150 properties throughout Colorado by utilizing creative real estate investing strategies ranging from seller financing and lease purchase to fix and flip and ‘subject-to’.

Logan has been able to arrange win-win results for property sellers. Logan’s attention to detail and outside the box creativity has allowed him to create consistent solutions for homeowners. He is a big fan of HGTV and passionate about helping sellers find solutions to sell their property. When he is not working, he likes to play chess, travel, hike, and watch movies in his spare time.

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